Bridge-to-Bridge Loans Delay CRE Reckoning as 10-Year Tops 5%

Commercial real estate owners stuck with cheap-money loans are buying time with another bridge loan, and that leaves them exposed as borrowing costs climb, according to Bisnow.

Landlords struggling to secure permanent financing are rolling one floating-rate loan into the next, moving properties within and across pools of securitized loans, Fitch Ratings said in August.

“That’s like paying anything to roll the dice one more time,” said Jim Costello, who co-leads MSCI’s real assets research team. Owners are betting long-term rates fall before lenders run out of patience.

Rates Are Moving the Wrong Way

The Federal Reserve raised rates in September for the first time since 2023. The 10-year Treasury yield, which prices permanent mortgages, hit 5.31% Monday, its highest in more than 20 years.

In 2021 the 10-year averaged 1.45%, and owners expected to refinance cheaply later. The Fed’s 2022 hikes ended that plan, and cuts in 2024 and 2025 never pulled long-term rates down. The 10-year is up more than a full point this year.

Lenders Keep the Money Flowing

Lenders bundled $31.6B of bridge loans into CRE collateralized loan obligations through August, more than in all of 2025 and on pace for the busiest year since 2021, per Fitch.

Fitch studied 65 actively managed deals it rated and found stabilized loans paying off and being replaced with loans carrying higher projected losses. Only 0.52% of loans were seriously behind in July, down from 1.44% in March, but modified loans rose 68.6% since the end of 2025 to nearly $4B.

Why Lenders Keep Refinancing Each Other

Lenders keep refinancing rivals’ 2021 loans for a simple reason. “Somebody’s getting a good spread on it,” Costello said.

Many debt funds are offshoots of private equity real estate firms and view default differently than banks do. A debt fund lending against a reset value can plan for a default and may end up owning a good building.

Investor-driven lenders, including debt funds, grew to 16% of commercial property lending in the first half of 2026 from 13%, per MSCI data reported by GlobeSt. Their average loan-to-value ratio of 69.5% was the highest of any lender group MSCI tracks.

Why It Matters

Some lenders who spoke at Bisnow’s finance event in New York last week say time is running short. Rialto Capital’s Joe Bachkosky said at Bisnow’s finance event that forced selling has been limited so far, but a longer stretch of high rates raises the odds of a day of reckoning.

Costello is less convinced. Distressed assets made up 20% of commercial property sales in late 2010, according to MSCI, but just 3% through mid-2025. “There wasn’t debt available at any price” in 2008, he said. “There still is today.”

Much of today’s distress is also fundamental, concentrated in older office buildings that need a new use more than a new loan. “What are you going to do with a midblock prewar office building in Midtown?” Costello asked, noting no lender is in a hurry to inherit that problem.

The pressure also shows up in refinancing, where refi deals struggle without fresh equity.

What’s Next

A cut from the Fed would not rescue these owners, Costello said, because long-term rates move with inflation and bond investor appetite. Apollo’s Torsten Slok wrote this week that bond rates may peak within a month, citing rising odds of a Middle East deal that would lower oil prices.

If rates fall, Costello said, rolling the dice could pay off. If not, the reckoning arrives, and it would take a shock such as a sharp jump in long-term rates or a credit crunch that cuts off the debt keeping these loans afloat.

“Unless somebody forces people to make hard decisions, they’re not going to want to for a while,” he said.